15 Mar 2012
Personal Liability of Directors
In the current tough economic climate, the ATO seems to be much more willing to pursue directors of companies personally if they fail to comply with their obligation to pay PAYG Withholding amounts. The issue of a Directors Penalty Notice (“DPN”) is the first step of such action.
On receipt of a DPN from the Commissioner, to avoid personal liability, directors are obliged to ensure that the company on or before the due day for payment:
- pays the amount owing (or pay estimates of those amounts where applicable) to the ATO;
- goes into voluntary administration (i.e. has an administrator appointed); or
- begins to be wound up (i.e. has a liquidator appointed).
If a director receives a DPN and no action is taken within the 21 days of the date the Commissioner sends the DPN, the director will become personally liable for the unpaid PAYG withholding amounts (even if the DPN is delayed).
Depending on the circumstances one of two defences may be available for a director in recovery proceedings.
Further, the Government is proposing to extend DPN's to make directors personally liable for their company's unpaid superannuation guarantee charge ('SGC').
What should you do
Given the severe potential consequences and very short time-frame, if your client receives a DPN is required. Otherwise, the director will become personally liable.
Directors of companies should review their PAYG withholding histories (and when legislation is enacted, their SGC lodgement histories) and assess the extent of any unpaid and / or unfunded liability. Under the rules, ‘I didn’t know’ is not a defence. Directors need to understand whether they are potentially exposed to recovery proceedings.
How M+K can help We have helped clients dealing with disputes with the ATO. Please contact Rob Warnock or Chi-Yung Lee if you require assistance.